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MMRF > SEC Filings for MMRF > Form 10-Q on 14-Aug-2013All Recent SEC Filings

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Form 10-Q for MMRGLOBAL, INC.


14-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the description of our business appearing in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 1, 2013 (the "Form 10-K"). This discussion contains forward-looking statements, which inherently involve risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking Statements" below. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" in Item 1A of the Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements. The words "anticipate," "expect," "believe," "plan," "intend," "will" and similar expressions are intended to identify such statements. Although the forward-looking statements in this Quarterly Report on Form 10-Q reflects the good faith judgment of our management, such statements are subject to various risks and uncertainties, including but not limited to the following:

º Our ability to obtain financing to fund our operations;
º Our inability to generate sufficient cash flow to service our debt obligations;
º The ability to generate subscribers for our products and services given the current competitive landscape;
º Our ability to adapt our products to conform to any technical specifications necessary to benefit from stimulus package funding;
º Our ability to raise dilutive and non-dilutive capital in order to meet our financial obligations and invest in our business to grow revenues, including risks related to our trading in the Over the Counter market;
º Our ability to launch new products or to successfully commercialize our existing or planned products;
º Managing costs while building an effective sales and service delivery organization for our products with our small management team;
º Our ability to maximize our legacy biotechnology assets and otherwise protect our intellectual property assets;
º Our ability to enter into marketing arrangements with large membership and affinity organizations for our products and maintain and grow subscribers from such arrangements, such as those noted above, particularly after the initial introductory period; and
º The possible invalidity of the underlying assumptions and estimates related to our business and market;
º Conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors and legislative, judicial and other governmental authorities and officials; and
º Possible changes or developments in economic, business, industry, market, legal and regulatory circumstances.


Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Any of such assumptions could be inaccurate. You should not place undue reliance on these forward-looking statements, which are based on our current views and assumptions. In evaluating these statements, you should specifically consider various factors, including the foregoing risks and those outlined under "Risk Factors" in Item 1A of the Form10-K. Our forward-looking statements represent estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview

Background

We provide secure and easy-to-use online Personal Health Records ("PHRs") and electronic safe deposit box storage solutions, serving consumers, healthcare professionals, employers, insurance companies, professional organizations and affinity groups. MyMedicalRecords enables individuals and families to access their medical records and other important documents, such as birth certificates, passports, insurance policies and wills, anytime from anywhere using the Internet. The MyMedicalRecords Personal Health Record is built on proprietary, patent pending, issued and applied for technologies to allow documents, images and voicemail messages to be transmitted and stored in the system using a variety of methods, including fax, phone, or file upload without relying on any specific electronic medical record platform to populate a user's account. Our professional offering, MMRPro, is designed to give physicians' offices an easy and cost-effective solution to digitizing paper-based medical records and sharing them with patients in real time. Since receiving the first notices of allowance in late 2011, the U.S. Patent and Trademark Office has issued us a total of four patents and one additional notice of allowance pertaining to the "Method and System for Providing Online Medical Records" and "Method and System for Providing Online Records". Such patents had been applied for as early as 2005 and we believe that these patents along with the remaining pending and applied for claims create a competitive advantage for us which we are looking to leverage through licensing agreements. For a description of our corporate organizational history prior to the date hereof, please see Note 1 to our financial statements.

Source of Revenues

We derive our revenues from the provision of services, which are comprised of facilitating electronic access to consumer medical records and other vital documents, as well as international licensing of our services. We offer our services to subscribers either on a direct subscription basis or an "access" basis through various types of organizations, and in both cases, we record these revenues under "Subscriber" in our income statement. On a direct subscription basis, which we use when we market our products direct to consumers or wholesale through corporations to their employees, or through affinity and membership organizations to their members, the subscriber pays us directly with either on a monthly or annual plan. On an access basis, which we currently use only with corporations, affinity and membership organizations, hospitals and other business to business customers, we charge a monthly fee to the organization based on the number of users who will have access to our services through such organization, whether or not such users actually enroll. During the three and six months ended June 30, 2013, we received $91,490, and $116,870 from subscriber revenues, respectively, which represents 29.4% and 27.0% of our revenues for such periods, respectively.

We also derive our revenues from the sale of our MMRPro system, which includes a scanner, various licenses to use third party software, a license to use MMR's proprietary MMRPro application software, dedicated telephone lines, secure online storage and product warranties. Installation and training are provided as part of the sales agreement. Software licenses, telephone lines, online secure storage and warranties are provided over the three year term of the agreement. Our customers pay these contracts in advance and are not refundable. We allocate the revenue derived from these arrangements among all the deliverables, based on the relative selling price of each deliverable. With the exception of MMR's proprietary MMRPro application software, we used third party evidence to set the selling prices used for this allocation. During the three and six months ended June 30, 2013, we recognized $205,359, and $237,597 from MMRPro revenues, respectively, which represents 68.3% and 56.2% of our revenues for such periods, respectively.

We are also generating revenues from the licensing of our biotech assets, which may include non-refundable license and up-front fees, non-refundable milestone payments that are triggered upon achievement of a specific event and future royalties or lump-sum payments on sales of related products. We record these licensing revenues under "License Fees - Biotech" in our income statement. We are sometimes paid an upfront license fee and milestone payments and we recognized these fees as revenue as payments were received. During the three and six months ended June 30, 2013, we received $3,700 and $6,700 from license fees revenues, respectively, which represents 1.2% and 1.5% of our revenues for such periods, respectively.

We also have generated revenues from licensing the sale and marketing of our services internationally and, to a lesser extent, from ancillary fee payments including web and marketing development services, amongst others. We record these licensing revenues under "License Fees" and other ancillary revenues under "Other Revenues" in our income statement. When we enter into a licensing arrangement, we are sometimes paid an upfront license fee and typically receive ongoing royalty payments that are often based on a percentage of revenue earned by our licensee. We recognize these fees over the license period. When we receive ancillary one-time payments, we record them when services or products are delivered.

In addition, we intend to generate future revenues from the licensing of our biotech and health IT patents. We will record those fees as revenue when payments are received. These fees may include non-refundable license and up-front fees, non-refundable milestone payments that are triggered upon achievement of a specific event and or future royalties or lump-sum payments on sales of related products.

Cost of Revenue

Our cost of revenue includes the cost of maintaining our voice and fax mailboxes, long-distance call transport costs, fax and voice call processing costs, credit card transaction processing costs, web hosting and management fees, website maintenance and support costs, costs associated with creating and mailing enrollment packages to our subscribers and the cost of scanners. Cost of revenue also includes customer service costs. We also charge to cost of revenue our direct selling costs, which include commissions paid to sales representatives who sell our wholesale and access based accounts.

Operating Expenses

The largest component of our operating expenses is our general and administrative expenses, which include personnel salaries and benefits, office rent and supplies, insurance costs, fees for legal and professional services, as well as our expenses for corporate telecommunications and internet access not associated with our products. Our operating expenses also include sales and marketing expenses (which include expenses associated with attending trade shows and travel costs, as well as a portion of personnel salaries allocated to sales and marketing activities), as well as technology development expenses (which includes expenses related to research and development as well as a portion of personnel salaries allocated to development activities).


Recent Accounting Pronouncements

For a description of recent accounting pronouncements and how we apply such pronouncements to our financial statements, see the accompanying notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Factors Affecting Future Results

Intellectual Property

Since its inception, MMR's health IT business has evolved from a development company, to a provider and reseller of Personal Health Records and document imaging and scanning systems (MMR Services), to a Licensor of MMR's intellectual property. Continuing into 2013, we remained focused on maximizing the value of our intellectual property portfolio, particularly the eight U.S. health IT patents that have been granted to date. Our health IT patent portfolio, which we have been building since 2005, currently includes our U.S. patents (with over 200 issued claims), 20 pending U.S. patent applications (with over 400 claims), six international patents including two in Australia with others in New Zealand, Singapore, Japan and Mexico, a Notice of Allowance received for our Canadian patent application in March 2013, and 15 other pending patent applications in foreign countries. These patents have the potential effect of enabling us to control a dominant marketplace position in personal healthcare, being well-positioned to benefit from the explosion in health IT globally. The full term of our health IT patents will not expire until September 12, 2025 or after.

Since September 2012, MMR, through the law firm Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP, began offering licenses to hospitals, group practices, pharmacies, laboratories, and EMR and PHR providers and pursuing infringement claims that resulted in litigation actions being commenced against Walgreen Co. in January 2013, WebMD in February 2013, Quest Diagnostics, Inc. in April 2013 and Jardogs in May 2013. We also retained Australian counsel in May 2013 who is investigating possible patent infringement in Australia.

Our health IT patent portfolio includes issued patents on our health IT products and services including our MyMedicalRecords and MyEsafeDepositBox product and services, which is in addition to our portfolio of biotech patents. MMR acquired significant intellectual property assets from the Merger with Favrille and continues to seek ways to exploit and monetize those assets, which include, but are not limited to, data from our pre-Merger clinical vaccine trials, the FavId™/Specifid™ vaccine, and the anti-CD20 antibodies.

MMRGlobal Health Information Technology Patents

Through our wholly owned subsidiary, MyMedicalRecords, Inc., we currently have eight U.S. patents - Nos. 8,117,045; 8,117,646; 8,121,855; 8,301,466; 8,321,240; 8,352,287; 8,352,288; 8,498,883 - as well as additional applications and continuation applications. The patents involve inventions pertaining to Personal Health Records, Patient Portals and other Electronic Health Record systems. We received Notices of Allowance from the United States Patent and Trademark Office for the first three patent applications in December 2011, which were subsequently issued in February 2012 as U.S. Patent No. 8,117,045, U.S. Patent No. 8,117,646, and U.S. Patent No. 8,121,855. Together, these patents have a total of 81 claims. Headed into the fourth quarter 2012, we received Notices of Allowance from the USPTO for the next two patent applications: U.S. Patent No. 8,301,466 was issued in October 2012 and expands existing patent coverage for communication of health information from healthcare providers to Web-based services through multiple forms of electronic messaging. Our fifth patent, U.S. Patent No. 8,321,240, was issued in November 2012, taking only 10 months to issue from its filing date of January 17, 2012.

Our next two U.S. patents, U.S. Patent Nos. 8,352,287 and 8,352,288, with claims totaling 57, were issued in January 2013 after being allowed on November 28 and December 3, 2012, respectively. Significantly, claims in the sixth patent expanded our patent portfolio with additional claims directed toward a Web-based service to access and collect health records from different types of service providers, including, but not limited to, retail pharmacies as well as hospitals, providers and other healthcare professionals providing services over the Internet. The health records, including prescriptions, may be collected from service providers using various types of messaging including email, facsimile, uploads, and voice. The seventh patent consists of additional claims related to collecting insurance information, calendaring, and other features which are already provided by MMR's products and services. Claims in the seventh patent address how healthcare providers send requested patient information to the patient, caretaker, provider or user by various means, including voice, fax, email or other electronic formats connected to a Personal Health Record system, patient portal or other locations on the Web. They also cover how users collect Personal Health Information on the Web or at other destination addresses without the healthcare provider having to enter specific personal identification numbers of the user. The information collected includes but is in not limited to a patient's medical history, chart notes, vaccination records, laboratory and other test results, prescriptions, and X-rays and images, as well as birth certificates and other important documents such as wills and advance directives.

MMR's most recent patent, U.S. Patent No. 8,498,883 with 28 claims was issued July 30, 2013 after being allowed in June 2013. Claims in the eighth patent further significantly expanded our health IT patent portfolio with additional claims directed toward accessing and collecting prescriptions.

Internationally, we have patents issued, pending and applied for in 12 countries of commercial interest. Six of the patents issued are in Australia, New Zealand, Singapore, Mexico and Japan. A Notice of Allowance in Canada (Serial #2,615,128) was received in March 2013. With the Canadian NOA, our health IT intellectual property looks to include all of North America. MMR also has 15 other pending patent applications in foreign countries further including, Hong Kong, Israel, South Korea, Japan, Mexico, Europe, and China. There are also five pending Patent Cooperation Treaty ("PCT") applications. We also has hundreds of patent claims in pending U.S. applications including 20 U.S. utility and provisional patent applications related to health information technology. These include applications directed toward a Mobile Platform for Personal Health Records, a Method and System for Managing Personal Health Records with Telemedicine and Personal Health Monitoring Device Features, Prepaid Card Services related to Personal Health Records, a Universal Patient Record Conversion Tool, Aggregation of Data from Third Party Systems into a Personal Health Record Account, Electronic Health Records in Clinical Trials, a Data Exchange with Personal Health Record Service, Delivery of Electronic Medical Records or Electronic Health Records into a Personal Health Records Management System, a Health Record with Inbound and Outbound Fax Functionality, a Method and System for Providing Online Medical Records with Emergency Password. We believe that many of the pending claims will ultimately be allowed including both health IT and non-health IT/medical applications which are pending in our entire patent portfolio.


MMRGlobal Biotech Assets and Patents

Although our primary business is the Web-based storage and management of personal and professional health and vital records, we acquired intellectual property rights to certain biotech assets through the 2009 Merger with Favrille, Inc. which currently include four U.S. patents, four U.S. pending patent applications, nine patents in foreign countries (including a European Patent validated in the following 12 countries: UK, France, Germany, Switzerland, Spain, Italy, Netherlands, Denmark, Sweden, Finland, Ireland and Belgium) and 15 pending patent applications in foreign countries. We have been working to perfect the patent condition of these biotech assets for over four years. As early as May 2010, we successfully revived Favrille's original U.S. Patent directed to treating B-cell pathologies. Additional U.S. patent applications were also successfully revived (and since issued as U.S. patents). As a result, we now have biotech patents and patent applications pending in 13 foreign countries of commercial interest that provide competitive advantages for this biotechnology. The foreign countries include major European, Asian, North American, and South American markets, including for example, in the United States, Australia, Brazil, Canada, China, Hong Kong, Europe, India, Japan, and South Korea.

In April 2013, we received two Notices of Allowance for our anti-CD20 monoclonal antibody assets, which follow the granting of our first such patent in Mexico in August of last year for "Antibodies and Methods for Making and Using Them." As announced on April 15, 2013, we received a Notice of Allowance from the United States Patent and Trademark Office, U.S. Patent No. 8,465,741, for our first U.S. patent for the anti-CD20 monoclonal antibody IP. Shortly thereafter on April 22, 2013, we announced that the Australian Patent Office had issued a Notice of Allowance for our anti-CD20 monoclonal antibody assets, Application No. 2007338607, under the same title, "Antibodies and Methods for Making and Using Them." The Australian NOA was significant to us in that it further reinforced the value of the U.S. and Mexico antibody patents, and continues to be used to seek expedited allowance in other countries operating under international patent treaties (referred to as the Patent Prosecution Highway). These patents for our anti-CD20 monoclonal antibodies have particular utility in fighting cancers and are considered important assets of our based on benefits and commercial value demonstrated by Rituxan®, an anti-CD20 monoclonal antibody with reported sales of USD $7.285 billion in 2012, which is due to go off patent in 2015.

MMRGlobal's biotech assets also include the B-Cell vaccine patents and patent applications entitled "Method and Composition for Altering a B Cell Mediated Pathology" which relate to methods of manufacturing compositions for B-cell vaccines used in the fight against lymphoma and potentially other forms of cancer, including U.S. Patent Nos. 6,911,204, 8,114,404 and 8,133,486. We maintain an additional pending U.S. patent application for this technology to pursue ongoing claim coverage for the methods of making and using the B-Cell vaccines. Issued foreign patents have also been granted in Europe, Hong Kong, Singapore and Mexico. An additional manufacturing divisional patent application was filed with the Mexican Industrial Property Institute in the third quarter of 2012 after the awarding of a second Mexican patent No. MX302477 in June 2012 to further enhance the protection of the manufacturing patents already issued. In January 2013, we announced approval of its European Union patent (European Patent No. 01979228.2) for methods of manufacturing the B-cell vaccines, which resulted in the regional patent undergoing validation in various countries selected by us as having commercial interest in the technology. The European Union patent has now been validated in the following countries: United Kingdom, France, Germany, Switzerland, Spain, Italy, the Netherlands, Denmark, Sweden, Finland, Ireland and Belgium.

Currently, our biotech patent portfolio includes U.S. and foreign patents with expiration dates of August 2021 or later, relating to the manufacture of the B-cell vaccines. The issued antibody patents (and other patents which may issue relating to this technology) have substantially later expiration dates of September 2027 or later. Additional patent applications once granted may obtain additional term of biotech patent protection.

Our biotech assets are comprised of patents and pending patent applications, patient samples and data from the FavId™/Specifid™ idiotype vaccine trials and our proprietary anti-CD20 antibody panels to treat B-cell lymphoma and additional B-Cell mediated conditions such as rheumatoid arthritis. Subsequent to the Merger, we have recovered additional intellectual property, including certain physical assets used by Favrille, Inc. in the form of over 1,800 patient tissue samples, samples of the B-Cell vaccine, a collection of insect cells used in the manufacture of the vaccine and other materials collected during our pre-Merger FavId/Specifid vaccine trials.

On December 22, 2010, we entered into a non-exclusive agreement with a major biotechnology firm to license the use of the our clinical and scientific data (originated by Favrille) related to targeted immunotherapies for cancer and other disease treatments to stimulate a patient's immune response and certain other confidential information. In consideration for the rights granted under the Agreement, the biotechnology firm agreed to pay us certain upfront fees and development milestones. When a milestone is reached it automatically triggers a payment to MMR.

We continue to seek ways to value and monetize our patent portfolio of biotech patents and related intellectual property assets acquired during the Merger.

Other Intellectual Property and Trademarks

We own the URL and domain name for the Web address www.MyMedicalRecords.com. We also own the domain names www.MyMedicalRecordsMD.com, www.MMRPro.com and www.MMRPatientView.com for use with MMRPro and own the domain name www.MyEsafeDepositBox.com for use with our MyEsafeDepositBox product. We also own the source code for our products.

As we continue to develop our products, we continue to register our trade names and logos as trademarks and service marks and will seek to protect the copyrights in the initial and any other proprietary content that we develop to support our MyMedicalRecords PHR, MyEsafe and MMRPro products. We also own the source code for a handheld software program, developed to operate on the Palm operating system, which allows Palm users to create a personal medical history on a personal data assistant, or PDA, so that they can have access to this information while traveling and in the event an Internet connection is not available. We intend to develop applications to use MyMedicalRecords and MMRPro products on other handheld devices.

Competition

MyMedicalRecords PHR

There are a number of other PHR providers in the consumer health information management marketplace today that compete against our services. These include MyMediConnect, NoMoreClipboard.com, Dossia, FollowMe,WebMD Health Manager, ZweenaHealth, and HealthVault®, although the last is more of a personal health platform that offers multiple solutions. In addition, we compete with Internet and patient-portals offered by EMR Vendors, insurance companies, hospitals and HMOs for their policyholders and patients.

Each of our competitors offers varying PHR products and services for online storage and access to medical records at varying price points (at the basic "free" level, with minimal recordkeeping capability and usually includes advertising).

MyEsafeDepositBox

Our MyEsafeDepositBox product competes with a number of online backup and electronic data storage services. The increasing use of cloud storage, external hard drives and portable flash drives to backup data also have the potential to compete with online data storage services such as our MyEsafeDepositBox product.


MMRPro

MMRPro competes with scanning services that market their services to doctors seeking to convert their historical paper records into electronic files, as well as EMR systems. MMRPro also competes with EMR systems that offer doctors the opportunity to make their entire office paperless.

Marketing and Sales

Marketing Update

Demand for both our consumer and professional medical records products is driven primarily by the U.S. healthcare market and the health information technology market. We are expanding our consumer market through strategic partnerships with healthcare professionals who have one-on-one relationships with patients who can benefit immediately from the use of our PHR. Likewise, we have created a retail consumer model through the use of prepaid Personal Health Record cards, which will be sold through retail brick and mortar outlets. On the professional side, demand is increasing in the field of ambulatory surgical centers and EMR systems as well as other clinics looking for an elegant and cost-effective scanning and . . .

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